States go all out with tax incentives, deals to hook firms

Critics say states, in push to attract businesses, often do more harm than good, with few jobs created and money wasted

May 15, 2011|By Alejandra Cancino and Julie Wernau, Tribune reporters

Illinois won a recent skirmish against Indiana, officials announced last week. Continental Tire promised not to build a plant in Indiana when Illinois offered a $22 million package that included a grant to help with capital expenses and job training. In exchange, the company pledged to spend $224 million to expand its Mount Vernon facility so it can produce nearly 4 million more tires annually and create 444 jobs over three years.

But the battle between the two states is hardly over.

In February, Indiana rolled out a $250,000 marketing campaign with print and electronic ads and billboards asking businesses if they are "Illinnoyed" by higher taxes and promising the "grass is greener'' in Indiana.

Last week, Indiana took it up a notch, saying it will reduce its corporate income tax rate to 6.5 percent. The state will start reducing its 8.5 percent rate by a half point every year for the next four years.

That reduction is aimed at small to medium-size companies, because most large companies in Illinois pay little, if any, taxes. Only a third of corporations filing Illinois returns owed taxes in 2008, according to the most recent data available from the state Department of Revenue.

This fiscal year, Illinois is projected to collect $1.6 billion from corporate income taxes and $8.7 billion from individual income taxes. Increases in the state's corporate and individual tax rates took effect on Jan. 1.

During a visit to Chicago on Thursday, Mitch Roob, Indiana's secretary of commerce, said he has no intention of signing a truce with Illinois.

"If (businesses) are Illinnoyed, they have choices," he said with a smile.